Country Report Bangladesh January 1996 Main report

Economic Policy & Economy: Central Bank governor sticks to targets

At a meeting of the Economic Reporters' Forum in early January, the governor of the Bangladesh Bank (the central bank), Khorshed Alam, was optimistic about achieving the Bangladesh Bank's targets for money growth and inflation during the current fiscal year (to end-June 1996). These are the same as those for 1994/95: broad money growth of 13% and a 4% ceiling for inflation. He admitted that in 1994/95 domestic credit had risen by rather more than planned, by 17.6% compared with the target of 11.6%, while broad money had risen by 16% and consumer prices by 5.2%. However, the latter result was largely due to higher food prices (up by 8.6% in 1994/95) because of disappointing crops. Mr Alam went on to point out that the central bank had recently taken measures to remove excess liquidity (see Banking and finance).

During the meeting the central bank governor reported that the Bangladesh Bureau of Statistics (BBS) had recently used a new method to calculate the rate of inflation, which would have yielded a rate of 4.4% in 1993/94, compared with the previous figure of 1.8%, and 8.7% in 1994/95, compared with 5.2%. However, the BBS, having produced figures which were widely criticised, then withdrew the new basis for calculation, making the excuse that it was not intended to be used immediately. (The whole episode illustrates the fallibility of measures of inflation in an economy with a large unrecorded sector.) Mr Alam said that, using the old method, the annualised rate of inflation in September was 5.8%, and in October 6%, and he was confident that the rate would fall to 5.8% by the end of December as a result of lower food prices. This seems a reasonable expectation, but the rate is not likely to edge down much more through the rest of this fiscal year because of the recent weakening of the taka.

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